Data Centers Don't Need To Be Regulated Utilities

The New York Times misses the big picture with its take on data centers as "wildcat" utilities that need government oversight. There is no data center monopoly in northern N.J.

The New York Times has renewed its series on the data center industry, zeroing in on the concentration of data centers in northern New Jersey and questioning whether data center operators should be regulated as de facto brokers of electrical power.

There's a limited amount of power available at any one data center in northern N.J., and James Glanz's May 13 story, "The Cloud Factories: Landlords Double as Energy Brokers," argues that data center operators should be governed by the public utility commissions that govern the generation and distribution of electricity.

The tone of Glanz's previous articles has been critical, coming across as if he has seen what's going on in the industry and thought through the implications, while others have not. Nothing wrong with being critical, and the data center industry is a burgeoning business that deserves greater scrutiny. But the reason only John Glanz has reached some of these conclusions may be due to the fuzzy logic involved.

Northern New Jersey, like northern Virginia, Miami and California's Silicon Valley, has a concentration of wholesale data center space, built to be rented to customers who install their own equipment and gain access to good network connections.

"When the centers opened in the 1990s ... the tenants paid for space to plug in servers with a proviso that electricity would be available. As computing power has soared, so has the need for power, turning that relationship on its head: electrical capacity is often the central element of lease agreements, and space is secondary," Glanz wrote. To buttress his point, he quotes a senior VP of a commercial real estate firm as saying the language of data center deals refer to real estate, but "these are power deals, essentially."

The ability to virtualize applications and concentrate more of them on a single server has led to the consumption of more power for each square foot of data center space occupied. That's a trend we're all acquainted with. But the writer doesn't stop there.

"A result, an examination shows, is that the industry has evolved from purveyor of space to an energy broker -- making tremendous profits by reselling access to electrical power, and in some cases, raising questions of whether the industry has become a kind of wildcat power utility," Glanz wrote.

Let me note that the term "wildcat," as in wildcat oil drillers, refers to those who go into territory not known to contain oil and try to find it by drilling. Hence, it has come to connote a risky business. How the term applies to data centers as utilities I would leave to John Glanz to explain. He says they are anything but a risky business.

Glanz suggests regulators need to step in and direct the power distribution in an equitable manner. When a for-profit company does so, it gets away with charging "double" for the power consumed by tenants because customers want guaranteed access to more power than their steady-state usage. That's because their needs ramp up, even though much of the time they're not using the amount they have contracted for.

This is typical over-provisioning by the enterprise data center managers; it looks bad until the business really needs more capacity, with a large volume of customer business at risk, and then having standby capacity appears brilliant. The cost of paying for double the amount of electricity typically used must be weighed against the cost of losing business, if you don't have the power available when needed. Enterprise data center managers have been making such calculations for a long time.

"Interviews with regulators in several states revealed widespread lack of understanding about the amount of electricity used by data centers or how they profit by selling access to power," Glanz wrote.

This is where the second part of the confusion sets in. Glanz is rather offhandedly claiming regulators fail to see the data centers in their proper light as electricity brokers. But what if they are not?

To be a broker of electrical power in the same sense that a regulated utility is, the broker needs to either generate the power being distributed, as many public utilities do, or be a distributor with long-term relationships with say, hydroelectric power generators in Ontario, Canada. With a source of supply, a regulated utility is then guaranteed all the business in its defined region; it's a monopoly. At the same time, it must serve all customers who come to it, using a set rate schedule approved by the public utilities commission.

When a new data center is built in northern New Jersey, such as the NYSE Euronext data center in Mahwah, N.J., it often opens with some of its space unoccupied to allow for further growth. It likewise has power supply outlets that are unused because there are not yet enough customers to fill the space. But as business picks up, the data center's ability to serve more and more customers has a limit. The space fills, the circuits get loaded up, the chillers work at capacity and eventually additional customers must be turned away.

dcguy is a data center professional who was interviewed by James Glanz at the New York Times but not quoted in his May 13 story. He says he disagreed with the drift of Glanz' questions. I've had my own discussion with dcguy and he strikes me as a knowledgeable figure after 18 years in the industry. Readers may draw their own conclusions but I for one don't get the one-sidedness of Glanz approach. Charlie Babcock, senior writer, InformationWeek

I finally made some time to read your article and I thought it was a fine rebuttal to what Mr. Glanz had presented. I was contacted for the article however my opinions based on being in the industry were not cited.

I found it interesting that while he contacted what I suspect were dozens of insiders/potential sources (at least two other peers I know of), not one of the sound bytes were used, only the ones that supported his position of data centers as filthy uncontrolled buildings where an industry conspires against the axe grinding realists like himself to do evil in the world and wield filthy electricity as its weapon of choice. And occasionally give said realists something trendy and sexy to write about to stir the pot. You quoting only him was the icing on the proverbial cake. Well played sir.

The fact is that data centers have demonstrated more efficiency gains per megawatt than the comparative number of homes (1 MW=1,000 Homes) in the last 30 years. The carbon footprint of 1,000 homes is far greater than a data center and 1,000 homes operation FAR less efficient than a data center. A cruise ship runs its diesel engines and generators more in one cruise than a data center will in its 20 year useful life. The emissions from power generated from a coal plant to feed a city are higher than that of a data center. That's where the real story is - comparing everyday uses of power, at scale, against the data center scale and see who is greener. My money is on the data center.

"Interviews with regulators in several states revealed widespread lack of understanding about the amount of electricity used by data centers or how they profit by selling access to power," Glanz wrote.

I agree with Charlie that the industry experts are on the cutting edge here. Think of the knowledge inside Facebook or Amazon on this topic, compared to government regulators. Does this remind anyone else of the early days of virtualization and cloud security, when IT pros were way ahead of PCI auditors in terms of knowledge?

When I reread what's written here, I want to add an addendum: major data centers must use power efficiently or the government may one day be justified in stepping in and regulating then. Efficient use of power in modern life will be required, not optional, as the cost of global warming starts to be felt. The data centers described by the N.Y. Times in Northern N.J. are in many cases modern ones that deliver 480 volt power off transmission lines to a power panel in the vicinity of the server racks. The higher voltage reduces power lost in transmission. Most enterprise data centers, however, use standard 120 and 220 volt power, because they don't wish to deal with the hazards and infrastructure requirements of 480 volt power. The difference is akin to the difference between the water in a high pressure fire hose versus the water coming out of the kitchen faucet. Completely understandable that enterprise IT prefers the latter, but wholesale data centers should be respected for what they've accomplished - as well as targets of criticism. Charlie Babcock, senior writer, InformationWeek

Enterprise cloud adoption has evolved to the point where hybrid public/private cloud designs and use of multiple providers is common. Who among us has mastered provisioning resources in different clouds; allocating the right resources to each application; assigning applications to the "best" cloud provider based on performance or reliability requirements.